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MERCOSUR”S FREIGHT PROBLEM? URUGUAY’S SOLUTION!

Indispensable to Mercosur’s continued success is a fast, reliable and affordable freight transportation network. It will permit industrial integration and specialization? and globally competitive costs? as well as the “just-in-time” delivery to final assembly plants of components and modular sub-assemblies manufactured throughout the region. Moreover, it will facilitate a massive increase in exports of perishable agricultural and livestock products through Atlantic and Pacific ports.

International and regional economic development experts also have concluded that evolutionary improvement in Mercosur’s existing rail and road connections is not a satisfactory answer, and that a revolutionary change in freight transport technology is required.

Pipeline Freight Transportation (”PFT”) appears to be the only technology that meets the experts’ criteria. A PFT system consists of twin two meter internal diameter reinforced concrete pipes lowered into a trench on land and across river and lake bottoms through which capsules move(see footnote 1) on rails propelled by Linear Induction Magnetic (”LIM”) propulsion (see footnote 2).

If Uruguay is to consolidate its status as Mercosur’s logical gateway ? and if the Port of Montevideo is to enhance its position as Mercosur’s preferred port of entry and exports ? and if Uruguay is to become the preferred site for parts manufacturing plants that ship components and sub-assemblies to the revolutionary modular final assembly plants now being built (e.g. Ford – Curitiba; GM – Rio Grande do Sul) in Brazil and Argentina — it is critical that the central hub of a hub-and-spoke PFT network throughout Mercosur and associated member countries be in its logical site: Montevideo. The network could also include secondary hubs within each Mercosur member.

In order to assure the placement in Montevideo of its central hub, it is highly desirable that Uruguay captures the leadership in the development and design of such a PFT network by sponsoring as a demonstration project the construction of its initial segment within Uruguay, for example, between the Montevideo and Colonia free zones.

International agencies and other funding sources are likely to support such a demonstration project not only as a template for subsequent extension throughout the Mercosur countries, but also as a freight transportation system that — with Uruguayan developed know-how — could then be replicated worldwide.

2- The maximum acceptable up/down grade for a PFT system is 20%, compared with 6% for Trucks and 2% for rail. The resulting capital cost and distance savings in crossing the Andes and the Rio de la Plata are obvious.

Additional Considerations

Other merits of PFT systems include:

• Reductions in truck fuel consumption and their exhaust pollution. PFT systems are powered by electricity.

• Reductions in the damage to roadbeds, overpasses and bridges; 97% of which is attributable to trucks (U.S. statistics).

Pipeline transportation systems of varying diameters have been in commercial use for decades, notably in Japan, Russia and the UK. However, their compressed air propulsion systems limit their operational length to a few kilometers.

LIM propulsion, the key to long distance PFT systems, is also in commercial use in a number of countries. Application of LIM propulsion includes:

• The baggage transportation and sorting system at the new Denver International Airport.

• New roller-coasters at several Six Flags amusement parks.

The principal challenge of the demonstration project in Uruguay would therefore be the combination of these two proven technologies.

A Final Thought!

It has been stated that LIM-propelled PFT systems will be the 21st century’s technology-of-choice for the intercity and transcontinental transportation of freight, as railroads were in the 19th century, and trucks in the 20th. Should not Uruguay be Mercosur’s — and the World’s — innovator in applying this 21st century solution?

Addendum

Julio Maria Sanguinetti, President of Uruguay, and his tourism minister, Benito Stern, enthusiastically support the Colonia – Buenos Aires “puente” (i.e. bridge), a project to award to the private sector a 35 year concession to finance, build and operate a 41.4 Km (26 mile) combination of bridges and causeways across the Rio de la Plata estuary (South America Report June 1998 issue, and Journal of Commerce June 16, 1998 issue).

Informed observers have expressed doubt that the project is economically viable without substantial subsidies:

Ariel Davrieux, director of Uruguay’s Office of Planning and Budget has stated that: “It is very difficult for the “puente” to be commercially viable given its high cost” (same two press sources).

David Michaels, president of the Uruguayan American Chamber of Commerce (USA) has stated that: “There is a belief that there is no way this bridge can be constructed for the money they are talking about” (same two press sources).

Luis Alberto Lacalle, former President of Uruguay and presidential candidate, has stated that: “the economic basis (of the bridge) upon which we are calling for offers does not add up. It is too expensive to be self-financed by its own traffic” (Journal of Commerce August 7, 1998 issue).

Moreover, informed observers agree with David Michaels’ contention that transportation of freight, not passengers, is the only macro-economic justification for the bridge as follows: “Forget the tourism argument. Tourists who want to go (from Argentina) to Uruguay already have a way of getting there. The bridge is only important from the aspect of transporting freight. There are other ways to resolve this transport problem” (same two press sources).

About the authors:

David P. Michaels is an advisor to corporations and government al entities on matters associated with economic restructuring and the related financial and economic negotiations. He is the creator of a number of financial programs for economic restructuring and expansion utilizing sovereign debt instruments, blocked currencies, trade and investment incentives, and has authored papers on international debt, trade, investment and economic restructuring. Notably, he was the principal proposer of the “International Central Clearing House” for the registration of public and private sector debt instruments and is credited with anticipating the concepts behind the Brady Plan and the Enterprise for the Americas program launched by the Bush Administration. Mr. Michaels’ activities of the MERCOSUR region of South America, the South American Common Market, includes representing and advising U.S. and European companies, including Government entities, on their negotiations with the Public and Private Sectors in the Southern Cone of South America, and he acts as a conduit for multinational corporations requiring access to “Southern Cone” markets. He is President of the “Uruguayan-American Chamber of Commerce in the USA”, which he co-founded in 1985 with His Excellency, President Dr. Julio Sanguinetti, during his earlier term as President of the Republic of Uruguay.

Edmond A. Tondu managed the project finance departments of two major US engineering/ construction firms. More recently, as an independent consultant he was the financing advisor to the Department of Public Works of Canada on a project to award to the private sector a 35 year franchise to finance, build and operate a Canadian $ 900 million, 13 Km toll bridge across the Northumberland Strait between Prince Edward Island and New Brunswick. He assisted Public Works Canada with designing its innovative capped annual subsidy financing structure, with drafting its Request for Proposals, with evaluating the bids, with negotiations with the bidders, and with drafting the franchise and subsidy agreements. Subsequently, Mr. Tondu was the advisor to the Dept. of Public Works of Turkey on the financing proposals of three competing consortia for the US$ one billion Izmit Bay Bridge private sector concession project.